Inheritance Tax Manual

Life Policies: Pure Endowment policy linked with a Term Assurance policy: Discounted Gift Schemes: factors affecting the open market value of the retained rights

The method of valuing the rights retained by the settlor was set out in some detail in a Technical note issued by HMRC on 1 May 2007 (IHTM20650) The open market value of the retained rights is depends on both the settlor’s personal situation, their

age

gender

state of health (and insurability)

and market factors

the purchaser’s required yield

the mortality base.

as at the date of the transfer.

The age and state of health of the settlor are critical, since if the transferor’s life was not insurable at the transfer date, the open market value of the retained rights will only be a nominal amount (IHTM20427). Ideally the selling insurance company will have had the transferor’s life underwritten when the transfer took place and will have taken this underwriting into account in arriving at their estimated transfer value. If it has not we will need to make enquires about the settlor’s state of health will be necessary to establish the value transferred. These enquiries may only be undertaken by the Actuarial Team